May 5, 2004. Source: Bloomberg

Chile's economy expanded in March at its fastest monthly rate in almost six years after demand strengthened for copper, Chile's top export, and manufacturers boosted output to keep pace with sales at home and overseas.

The economy expanded an estimated 6.3 percent in the 12 months to March, when prices for copper rose to an eight-year high, after a 4.2 percent expansion in February, the Santiago- based Central Bank said. It was the fastest monthly growth since April 1998, when the economy expanded 7.35 percent.

"A big part of this is demand abroad,'' said Juan Chavarria, who helps to manage $60 million at Bandesarrollo Administradora General de Fondos SA in Santiago. "Economic activity is stronger than had been thought.''

The monthly figure, which takes into account almost all of the economic activity included in the gross domestic product, would bring first-quarter GDP growth to 4.5 percent, the fastest expansion since the second quarter of 2001.

Chile's economy is strengthening as demand for commodities climbs and companies such as copper producer Codelco boost output, and as a Chilean Central Bank benchmark lending rate at a record low of 1.75 percent boosts demand at home.

Chilean Finance Minister, Nicolas Eyzaguirre, told reporters in Santiago that the South American nation is on track to grow about 5 percent, while the Central Bank estimates growth of as much as 5.5 percent this year, the fastest rate since 1997.

Domestic Rates

The Central Bank may raise its lending rate this year, rather than holding the rate at its current level, if growth accelerates near these levels in the months ahead, Chavarria said. The benchmark rate is at the lowest level since the bank began setting it in 1986.

Growth in Chile would outpace an average this year in Latin America forecast at 3.5 percent by the Santiago-based United Nations' Economic Commission for Latin America and the Caribbean in December. Chile manufacturing output rose 7.8 percent in March from a year earlier, and in February rose at its fastest rate in 19 months, climbing 8 percent.

All the same, rising U.S. interest rates may slow demand for copper and growth in Chilean export revenue, which rose to record in the first quarter, said Luis Aliste, who helps manage $1.2 billion at insurer Cia. de Seguros de Vida Corp SA in Santiago.

Copper futures prices have declined 10 percent from an eight- year high in March to trade at $1.242 a pound for delivery in July on the Comex division of the New York Mercantile Exchange at 1:55 p.m. New York time.